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"Governments need to ensure that central banks' monopoly over coins and notes is not replaced by private monopolies over digital money, and they should maintain banks' obligation to keep customer information private, so that the plumbing remains anonymous. Digital firms that use this plumbing to offer services should be free to monetize transaction data, through, for example, advertising, so long as their business model is made explicit to users. The phase-out of cash should be gradual. For a period of ten years, banks should be obliged to accept and distribute cash in populated areas. This will buy governments time to help the poor open bank accounts, educate the elderly and beef up internet access in rural areas."

Blockchain startup Digital Asset is open sourcing its Digital Asset Modelling Language, the heart of projects like the partial ASX re-plumbing. This will include its source code, runtime system, and software development kit, all under an Apache 2.0 license.

"The SEC has put significant limits on Paxos's experiment. Only about 140 of the most actively traded, least volatile stocks, like Exxon Mobil Corp. and Bank of America Corp. , are eligible for the project. The number of trades Paxos can settle will also be capped at 1% of average daily trading volume of those stocks, according to the SEC's letter."

State Street has taken a new direction with its blockchain strategy and cut scores of developer jobs in the process. The focus is now more on digital assets such as tokenized stocks and bonds through to crypto-assets, rather than the heavy lifting work of re-plumbing front to back office with distributed ledger technology.

Proposals for global stablecoins have put a welcome spotlight on deficiencies in financial inclusion and cross-border payments and remittances to emerging market and developing economies. This column, part of the Vox debate on digital currencies, argues however that stablecoin initiatives are no panacea. Moreover, they pose particular development, macroeconomic and cross-border challenges for emerging market and developing economies. It remains to be seen whether stablecoins can offer a decisive comparative advantage over fast-moving fintech innovations in these countries that are built on or improve the existing financial plumbing.

Crypto custodian Fireblocks and payments platform First Digital Assets Group are providing connectivity and support to Diem, the global stablecoin and payments system formerly known as Libra. They will provide the digital plumbing to allow financial service providers such as banks, exchanges, payment service providers (PSPs) and eWallets to plug into Diem on day one. Diem plans to emerge around the end of this quarter, with a modest minimum viable project based around a U.S. dollar stablecoin.

Of all of the disruptive possible uses of blockchain, decentralized finance (or DeFi) might be the one most likely to bring this technology to a wide audience - and challenge the established finance industry in the process. By using self-executing contracts on newly formed marketplaces, DeFi allows users to stand in place of large institutions to loan and borrow money to each other, and to earn interest and fees by doing so. DeFi offers new opportunities to make money, such as "yield farming," which often resemble traditional finance strategies. But it also offers a large-scale update to the basic plumbing of financial markets such as NASDAQ and the NYSE, offering more efficiency, transparency, and trust. There is significant risk inherent these crypto markets, but DeFi offers a less volatile and more accessible point of entry than other markets - and may just have enough appeal to bring blockchain into the mainstream.

Many industry participants have commented on how the gap in marketcap between Tether and its largest competitors has narrowed. However, the difference between USD₮'s 24hr trading volume and its competitors tells a clearer and more important story. For example, rather than catering to the traditional banking industry, Tether is focused on being the most used currency for peer-to-peer exchanges, remittances, a tool of freedom and inflation hedge for developing countries. This is why, while Tether's marketcap has decreased due to the billions of cash redemptions that it's effortlessly facilitated over the past several weeks, Tether's 24hr trading volume remains roughly 10x that of its closest competitor. This points to the utility of Tether in daily trading and is the true measure of adoption. The sheer scale of the integration of USD₮ into the financial plumbing of the crypto industry is an order of magnitude greater than its nearest competitor.

The Brookings Institute published a paper by Timothy Massad, U.S. Commodity Futures Trading Commission (CFTC) , on how blockchain-based stablecoins could undermine the global financial system plumbing that has been exploited by U.S. authorities to protect national security interests (e.g., by implementing sanctions). He discusses various regulatory and legislative options, and finds them either insufficient or disrespecting reasonable privacy expectations. Mr. Massad suggests that, at minimum, stablecoin issuers should be required to engage in enhanced monitoring of blockchains for suspicious transactions and consider when the issuer must "freeze" stablecoins.

Digital Asset is collaborating with ISDA to develop a new tool that can support the use of smart contracts for derivatives trading. The collaboration focuses on creating interoperable technical solutions that advance standardization to allow for greater automation of derivatives trade management.

This paper investigates the extent to which terms of, and workflow around, the provisions of ISDA Master Agreements can be automated via smart contracts.

"The Federal Reserve Board is considering a decision about the future of digital banking that goes well beyond the narrow question of whether now is the time to transition to immediate payments. The board will decide whether the Federal Reserve will continue to play an operation role in digital payments."

The International Accounting Standards Board will on Friday publish proposals offering relief on the treatment of old Libor-type benchmarks and newer ones, such as Sofr, the US benchmark.

Token sales haven't stopped since the 2017 boom. They've just changed names. Initial exchange offerings (IEOs) - where a cryptocurrency exchange offers a direct listing and launch campaign for a new startup token - are earning blockchain companies millions in 2019.

The Senate Banking Committee staff reached out to Caitlin Long pursuant to her recent Forbes article on Libra. Here is her formal written testimony.

Euroclear, one of the world's largest securities depositories, says it will push forward with building a pilot blockchain-based platform for the issuance and settlement of European commercial paper (ECP).

In terms of settlement finality , subject to certain conditions, proof-of-work settlement is preferable to legal settlement finality. However, those conditions are not likely to be met as they pertain to the well-known drawbacks such as lack of scalability, excessive energy use and the 51% attack vulnerability. Future designs of new types of blockchains will need to consider these shortcomings in order to enable the regulated industry to benefit from this technology innovation.

We construct an empirical measure of spread (EMS) to capture the dynamics of quoted CDS spreads to derive a refined negative CDS-bond basis trading strategy. and find that the EMS can explain the movement of near future CDS spreads.

ICE-backed Bakkt is apparently gearing up to announce a Q3 launch date. It is still waiting on approval from the NY DFS to operate Bakkt Warehouse, the custodian for the bitcoin that underpins its physically delivered futures. However, some are arguing that Bakkt's guaranty fund will be too small, which Bakkt itself seems to acknowledge with plans to increase the guaranty fund over time, after the launch.

FX Derivatives (FXD) participants face a tricky choice across a patchwork of clearing and uncleared optimization techniques, trading off funding and capital usage with infrastructure spend and operational risk. In earlier posts, we showed you how FX IM optimization via NDFs and FX Options clearing developed in Q1 2019.  Here I update the volumes for Q2 2019 and set the trends alongside other emerging techniques in FXD counterparty risk reduction.